A Study on Choices and the Profile of the Brazilian Investor in the Decision-Making Process

Jose Carlos Silva Alves Cravo1, Daiane Rodrigues dos Santos*1,2, Campo Elias Suarez Villagran3, Marcia Monteiro Matos2

1 Candido Mendes University, Department of Economics and Management, Rio de Janeiro, Brazil 2 UERJ 3 IMPA 4 UERJ

*Corresponding Author:

Daiane Rodrigues dos Santos Candido Mendes University, Department of Economics and Management, Rio de Janeiro, BrazilE-mail: daianesantoseco@gmail.com

Received: 10-Aug-2022, Manuscript No. gmj-22-71658; Editor assigned: 12-Aug- 2022, Preqc No. gmj-22-71658; Reviewed: 24-Aug-2022, QC No. gmj-22-71658; Revised: 29-Aug-2022, Manuscript No. gmj-22-71658 (R); Published: 05-Sep-2022, DOI: 10.36648/1550-7521.20.54.321

Visit for more related articles at Global Media Journal

Abstract

The objective of this work was to show, through Prospect Theory (PT), a broader approach to finance and economics, which includes concepts of psychology and sociology, how agents, and particularly investors, are susceptible to deviations from rationality that directly impact their choices, making their decisions not always by the pillars that support classical theories of finance. The research was carried out with individuals, investors with great evolution of trading on the stock exchange (B3), and who have risk aversion scenarios in times of economic and political instability in Brazil. The data were analyzed with a statistical character to identify relationships between the variables and obtain essential data about the participants (through a questionnaire). Through the questionnaire, it is observed how much a behavioural effect greatly influences the choices of economic agents who are mostly men, well-prepared academically, with 78.40% completing higher education and/or some specialization and concentrated in the country’s Southeast region. Brazil with approximately 68.9% of the base.

Keywords

Behavioural Finance; Classic finance; Utility; Rationality; Prospect theory

Introduction

In life in general, at all times, we are faced with situations that involve selections and decision-making. When these "choices" are related to finances, several aspects influence the decision, and even being aware of not acting rationally in the making. Decisions, always opting for the best alternative among all those that appear to be viable. This is how traditional models describe how the individual behaves in decision making in the face of risk situations. Furthermore, when they make judgments, we are susceptible to inputs that, in many cases, do not have an idea of where they come from and how they influence their perception of things and our way of acting.

The fact is that investors (agents) can act inconsistently, making systematic errors, even in situations they are used to and on matters they believe are under their control.

The way of evaluating and choosing a particular stock of a company (in the case of investors) is not only in the market sense through anomalous movements and impact on the wealth of investors, but it can culminate in a problem of destroying the value of companies, jobs, given that for a capital market company not to perish, it depends on investor validation.

The present study was based on quantitative research to investigate whether or not there is an asymmetry between gains and losses. For this, the behavior of preferences and choices was analyzed in the evaluation of decision-making by investors, considering a period of great economic and political instability in the country and the world.

The general objective of the research seeks to address important concepts of Behavioural Finance, Prospect Theory and to investigate the behavior of preferences and choices in the decision making of individual investors in Brazil.

Prospect Theory was used for the investigation to evaluate the respondents' decision-making through a questionnaire. The analysis was limited to individual investors in Brazil through an applied questionnaire (collection between the years 2019 and 2020). In this period, the country and the world underwent major changes related to the political and economic situation, in addition to the epidemiological crisis (COVID) that significantly impacted the market and people's lives.

Methodology

Regarding Behavioural Finance, it is believed that information is not available to everyone (information asymmetry) and that it has a cost, which may be through acquisition or research, and may have conflicting interpretations. In any market segment, correct decisions are made based on a very limited set of information, but information that is highly relevant to the decision being taken [1].

A highlight is that even having several definitions or typification of Behavioural Finance, there is a certain similarity between them. From the application developed by Kahneman and Tversky (1979), it was identified that the effective decision of individuals is often not consistent with the decision expected from the theoretical model of maximization of expected utility.

In financial decisions (in the case of investment), there is a divergent discussion between modern finance theory and behavioural finance [2] on the behaviour and rationality of the individual as an economic agent. In this case, there is no formula or method for the perfect decision. Since the way the individual behaves and perceives the world around him impacts the quality of his choices, agents must be well-prepared to perform their duties. Role in the exposed situations.

In their work, rosales-Perez et al. (2021) analyse financial behaviour and indicate that emotional factors assessed by tests such as emotional intelligence and personality traits influence bias in financial decision making. In the study, university students and individuals from the financial sector were examined, and the result was that several students showed deficits associated with empathy, emotion regulation, among others. This deficit can increase the spread of biases such as risk tolerance, optimism and loss aversion.

In this sense, this article was developed in the light of behavioural finance. Through prospect theory, it analyses how cognitive biases interfere with the way the economic agent makes decisions that often have limited rationality. Behavioural finance is a recent area of finance based on prospect theory, which aims to explain irrational investor decisions caused by emotional factors that modern finance theory cannot resolve.

Kahneman and Tversky's (1979) Prospect Theory is based on psychological phenomena that motivate assumptions about how people react to gains and losses and how they weigh outcomes with probabilities.

In the area of Behavioural Finance (FC) one of the most relevant researches was the work published by Kahneman and Tversky entitled “Prospect theory: An analysis of decision under risk”, in 1979. The article in question presents the behavioural results of 16 problems. Of choice, designed to demonstrate how human decision-making, under risk, violates the assumptions of the Expected Utility Theory (EU). The researchers point out that psychological phenomena were, in turn, used to motivate decisions in the form of nonlinear reactions to value and probability and differential reactions to gains and losses of equal magnitude.

The rationality of risk-taking decision making is a central concern in psychology and other behavioural sciences. In real life, information relevant to a decision usually arrives sequentially or changes over time, implying non-trivial demands on memory [3].

Given the aforementioned Theory, it is proposed that decision makers become risk averse in choices involving the probability of safe gains and risk takers when the same probabilities present themselves in terms of potential losses. The risk aversion tendency of gains (Domain of Gains), combined with the propensity to the risk of losses (Domain of Losses), is called the reflection effect and demonstrates an asymmetry in the way decisions are made involving possibilities of gains or losses. According to the theory in question, agents estimate the lower weight of probable results compared to those obtained with certainty. This trend was defined as the certainty effect.

The important point is that Prospect Theory details how individuals behave in the face of risk, describing investor behavior, and suggests that depending on the probability associated with the event’s outcome, the same agents may be risk-prone or riskaverse.

To better exemplify this theory and the behavior of individuals, tests from Bernoulli's theory are used, tables 1 and 2 (basis of modern expected utility theory). According to Bernoulli, the moral value involved in a choice containing risks is not necessarily equal to the expected mathematical value, disregarding personal variables such as wealth and scarcity (Tables 1 and 2).

According to Bernoulli's theory, the choices in the two proposed situations should be similar, since the expected values in the two options in each problem are equivalent. In the study, most of the people interviewed who participated in the experiment were risk averse in Problem 1, Table 3. The subjective value of a gain of $900 is more than 90% of the value of an increase of $1,000. The risk-averse choice in this problem would not have surprised Bernoulli.

In Problem 2, most people opted for the gamble: exposure to risk. The explanation for this choice to pursue risk is because specific loss is very aversive, and this drives people to take the risk [4] (Table 3).

However, the two problems are identical in the level of wealth variation, but the way they are formulated (gain/loss) generates a discrepancy between the two results. In Problem 2 (in the face of loss), in table 4, individuals take risks, so they do not have to make the loss, risking a loss of greater value. In Problem 1 (in the face of gain), people are risk averse given a particular gain, preferring not to risk a greater gain (Table 4).

Source: Own elaboration based on Bernoulli’s theory.
2 Bernoulli's Theory - Problem 1 Source: Own elaboration based on Bernoulli’s theory.
Table 2. Bernoulli's Theory - Problem 2  Source: Own elaboration based on Bernoulli’s theory
Table 3. Bernoulli Theory Tests - Problem 1 Source: Own elaboration based on Bernoulli’s theory
Table 4. Bernoulli's Theory Problem 2

The experiments suggest a weakness of the Bernoulli model regarding the evaluation of losses and gains. In Bernoulli Theory you only need to know the state of wealth to determine its utility, but in Prospect Theory you also need to see the reference point [5], therefore, in Utility Theory, it is enough to know the change in the current state of wealth to measure its utility.

The investor is rational and evaluates the risk according to the change that he can provide in his final level of wealth, without considering behavioural biases. The addition of a monetary unit adds a smaller unit of value than previously received (decreasing marginal utility of wealth), as illustrated in (Figure 1).

In the Quick and Slow Book: Two Ways of Thinking, Kahneman (2012) details the three fundamental characteristics of prospectus theory:

The valuation is relative to a neutral reference point: for financial results, the usual reference point is the status quo or another one you want to establish. Results above this reference point are earned. Below the reference point are losses.

I. Principle of decreasing sensitivity applies to both sensory dimensions and assessments of wealth change. Turning on a dim light produces a strong effect in a dark environment. Similarly, the subjective difference between nine hundred dollars and a thousand dollars is much smaller than the difference between one hundred and two hundred dollars.

II. Aversion to loss: Tversky and Kahneman (1992) estimated that the loss of a currency unit generates heartbreak that can only be offset by the gain two times higher. Loss aversion is based on the finding that pain from loss is greater than the pleasure obtained by an equivalent gain.

A natural unfolding of loss aversion is the fact that people tend to retain losing assets in the investment portfolio and quickly undo those assets that are bringing some positive return. This is an asymmetric behavior called the disposition effect [6].

The three principles that govern the value of the results are evidenced by Graph 2, which should be analyzed in two distinct parts, to the right and the left of a neutral reference point. A prominent feature is that it is an S-shape representing decreasing sensitivity for both gains and losses. It is also important to note that the two Curves of the S are not symmetrical. The tilt of the function changes at the neutral reference point [1]. Contrary to the utility theory, where the investor assesses the risk of an investment according to the change it provides in its level of wealth, Tversky and Kahneman (1979) suggest a new risk-utility curve that includes psychological factors.

This new curve presented in Graph 2 has a concave shape for gains and convex for losses, taking the form of an S, representing that investor feel more the pain of loss than the pleasure of gain (Figure 2).

The Prospectus Theory is an example of a descriptive model (having the main objective of understanding the real behavior of those who make the decisions), as discussed by Sobreira (2007) in the following items:

I. Gains and losses are assessed against variations and not at a particular level of wealth.

II. The results are expressed in relation to the neutral point of reference and are expressed in terms of gain when they exceed this point and losses when they are less than this point; the choices are governed by an "S"-shaped value function, concave (risk aversion) in the "Gain Domain" and convex (risk propensity) in the "Loss Domain”.

III. The feeling associated with losing a given value is greater than the feeling associated with the gain of that same value. There is a tendency to overvalue events of little probability.

For Bernoulli, and all the others who came after him and based their theories on the idea of utility, what provides utility is the "state of wealth", regardless of how the agents got to him, that is, utilities generated by movements of gains and losses are computed comparing the two states of wealth the one from which the agent left and what is in the end. In this context, since what is analyzed is the usefulness provided by the state of wealth, gains and losses have the same impact on the individual, being impossible "[...] represent the fact that the "uselessness" of losing five hundred dollars could be greater than the usefulness of earning the same amount – though, of course, it is [7].

The alternative proposed by Kahneman and Tversky, which culminated in the development of perspective theory, is that utility is more linked to changes in wealth than to states of wealth. According to them, what matters most are the movements of gains and losses from a reference point which the authors refer to as the "level of adaptation". The level of adaptation is not necessarily the previous state, and maybe the expected result, the form of another person, and even what is found together to possess. This interpretation allows you to define different utility values for the same movement, depending on whether it is a loss or a gain. The usefulness for an investor whose state of wealth is $1,000 is different depending on whether in the previous state he had $1,100 or $900, meaning the "uselessness" of losing $100 is different (in this case, possibly greater) than the usefulness of earning $100.

Another important point of the perspective theory is that there are subjective differences between movements of the same magnitude that depend on the reference point. With this, the usefulness provided by a $100 gain is appreciably different if the individual’s previous state was $50 or $5,000. Kahneman makes a parallel of this effect with sensory dimensions, such as the difference between turning on a dim light in a dark or very light environment or putting your hand in a container with standard water after you have dipped your hand in hot or cold water. The perception will be different, even though the weak light has the same intensity and the water norm the same temperature in both cases.

One last point, which will be explored further below, is the principle that investors are averse to lose and not risk, as the formulators and advocates of Theories of Expected Utility have preached. This means that the reactions to losses are more significant than reactions to gains, even in cases where the values of the losses are equal to or less than the values of the gains.

These principles make the utility function proposed by Kahneman and Tversky the same format as an "S" as the Expected Utility Theories, but is non-symmetrical, and has the reference point as its central element.

Figure 3 shows that sensitivity (marginal utility is decreasing for gains and that marginal disutility is decreasing for losses) to losses is theoretically higher than gains. Thus, it is found that the psychological value of losses is greater than the psychological value of corresponding gains, demonstrating how much they are averse to loss.

The fact that the utility function is concave for gains and convex for losses generates the reflection effect. In this case, the agent is risk-averse to gains and prone to risk for losses (Figure 3).

The research carried out by the authors in the work Prospect Theory: An analysis of decision under risk deconstructs the pillars that support the Expected Utility Theory demonstrating a series of phenomena that violate their principles by analysing the answers of university students to a series of questions elaborated by the authors.

Questionnaires were applied to a sample of 404 respondents, that is, individual investors in Brazil where, according to the method proposed by Kahneman and Tversky (1979), they should make individual choices in the face of alternatives involving hypothetical questions of certainty or uncertainty (theory of of the prospectus). In this way, the research considers that individuals are aware of two preferences in the face of real decisions and that they have no reason to respond to hypothetical situations different from the real ones [8, 9] This point is important, as Kahneman and Tversky (1979) report possible problems regarding the validity of the method and the generalization of results due to the use of hypothetical situations. This research assumes that the choices for the issues proposed in the questionnaire reflect the decisionmaking process of individuals in real situations.

The questionnaire was sent via Google forms, followed by a message via the Whatsapp application and e-mail with guidelines on how to fill it out. It was emphasized that the questions were answered with all sincerity, respecting the profile, regardless of age or gender. Regarding the form of completion, individuals were instructed to respond without consulting any person or source, and that they would not have to worry about the accuracy of the answers (even because many of them did not have right or wrong answers), since they did not there was a need to identify the respondent, and that the answers would serve as for academic work from July 2020 to May 2021 (Figure 4).

Table 5 shows that the average age of investors is higher than 39 years, which demonstrates a profile of mature adult people, the predominance of the male public, and more than 80% have a higher level. This result shows that most investors have an advanced age and an above average level of education.

The second part of the questionnaire, as mentioned above, aimed to understand what the investment decision process is like, and whether there is any specific bias. Twenty-one questions were asked about the decision-making process (Table 5).

 
Source: Own elaboration based on the data collected through the questionnaire
Table 5. Respondents' profile

Evaluating the way of acting and the behavior of people in our environment it was identified that homo economicus is hardly present. There is no need for research and studies, although they exist in droves, to conclude that individuals do not have, at all times and on any matter, all information available to make decisions, do not have the unlimited cognitive capacity or full self-control. However, everyone makes decisions at all times and on all matters. The critical point is to understand how to do this, and how the human brain processes data and information so that it is able, good or bad, to make choices and make decisions.

Always thinking with what Kahneman calls System 2, that is, analytically, checking and organizing the data with each decision to be made, is very expensive and tiring, besides requiring a degree of concentration and effort out of the ordinary. Hence, people make use of heuristics in the decision-making process, in this case, we are met with irrational attitudes because if individuals use thought information, then it is not being rational, acting on impulse, as if it were an animal.

According to Kahneman, "[...] heuristics is a simple procedure that helps to find adequate, if often imperfect, answers to difficult questions" [2], through these procedures, people can make decisions about subjects or analyse situations about something they do not know. They can, for example, decide probabilistically without understanding probability or having no notion about statistics. Somehow people can simplify a very difficult task, and this is undoubtedly the result of some form of information processing, of some work done by their heads.

The questionnaire is used, following the structure of Kahneman's question (2017) to elaborate on one of the questions to identify whether the people who answered the questionnaire made the same error that the researchers identified, that is, whether investors who answered the questionnaire use the same pattern of judgment when analysing situations of the type in which they have to assign probability with inputs similarity between facts/ descriptions and situations/people.

The result of the research whose objective is to identify behaviours that indicate that investors systematically act against the precepts that underpin classical finance and efficient market theory (HME). To analyse the results, we sought theoretical foundations in the assumptions of behavioural finance. Classical finance, whose decision-making model is supported by the principles of the Expected Utility Theory (EUT), is based on three pillars

a) Individuals will always act in a way that increases their usefulness, comparing the values of the expected utilities of each alternative presented.

b) Individuals analyse the result of the portfolio as whole, not individual positions.

c) Individuals are risk averse.

As can be seen in table 6, questions 18 to 21 of the questionnaire answered present a pattern in the individuals' answers, where they choose the answer with the highest standard deviation, which shows that they are not risk-related, but when we are sure of the result (questions 20 and 21 item B) the choice increases due to standard deviation 0, in this case we have evidence of an increased risk aversion (Table 6).

Source: Own elaboration
Table 6. Results questions 18 to 20
Caption

In table 7, questions 1, 3, 5, 7, 9 and 14 of the answered questionnaire present a pattern in the individuals' answers, where they choose the answer with the lowest expected value (standard deviation), which generates indications that the respondents are inverse to risk, however, when the certainty of the result increases (questions 7 and 9 item A) the choice increases due to the lower standard deviation, in this case, we have evidence of a reduction in risk aversion. It is observed that most of the choices are above 60%, especially the answers to questions 7 and 9 that exceeded 80% of the choices. This fact reflects the option for a lower standard deviation and a greater degree of certainty of the results (Table 7).

Source: Own elaboration
Table 7. Results questions 1, 3, 5, 7, 9 and 14.
Caption

In table 8, questions 2, 4, 6, 8, 10, 11, 12, 13, 15, 16 and 17 of the questionnaire answered show a pattern in the answers of the individuals, where they choose the answer with a higher expected value (standard deviation), which shows that they are risk-averse, but when the certainty of the result increases (questions 16 and 17 item B) the choice increases due to the lower standard deviation, in this case we have evidence of a reduction in risk aversion (Table 8).

Source: Own elaboration
Table 8. Results questions 2, 4, 6, 8, 10, 11, 12, 13, 15, 16 and 17

According to the Expected Utility Theory, individuals seek to consider less the results that are likely in relation to the results that are considered correct. But when it is possible to win (right), but not likely (not sure), most opt for the option that will maximize its usefulness. According to this principle, the agent would be indifferent to the following alternatives: a 90% chance of winning $10 or 100% chance of winning $9, since both produce the same utility, but the results obtained by Kahneman and Tversky show that agents overestimate events that are considered right about those that are likely, which demonstrates that the subjective value of certainty (earning $9) is greater than the subjective value of probability (90% of earning $10) when the results of probability-weighted utilities are equal.

In fact, in cases of agents more risk-averse, they agree to pay a premium to avoid uncertainty, opting for the alternative whose utility weighting result by probability is lower. This effect is called by the authors "Sure Effect".

To identify this effect, in addition to other side effects resulting from this preference of individuals for certainty, we asked some questions. The responses of investors go in the same direction as those computed in the survey, including with very similar intensities.

The answer to Question 7 shows the preference that investors have for the right alternatives, even when the pay-out is lower (R$ 5,000.00 x R$ 4,800.00); that is, they are willing to pay a premium to escape uncertainty (Table 9).

Source: Own elaboration based on the answers of the surveyed
Table 9. Sure Effect

The same inconsistency can be verified by analysing the answers to Questions 8,9,10, 11, 13, 14 and 16 because the alternatives are the same but arranged differently.

Analysing the individual pattern of the choices between Questions 1 and 3, it is verified that 76.2% of investors who chose to earn R$ 7,000 in the first question decided to earn R$ 7,000 with a probability of 25% and R$ 4,000 with a 75% probability in the second, which violates the precepts of the Expected Utility Theory. The same transgression is verified when analysing the individual answers to Questions 4 and 6, with approximately 68.30% of investors making inconsistent choices.

What draws the most attention here is that investors opt for the alternative with the highest level of certainty (higher probability) when the odds of gains are substantial. On the other hand, when the chances of winning are remote, tend to choose the alternative that presents the highest value as a chance of winning (note that here the manager does not choose by pay-out, because both are equal, but by the values in "game"). Again, the analysis of the individual pattern of choice attests to the inconsistency of investors, since 50% of them opted for the "answer pair" that violates the principles of EUT Theory.

For the Expected Utility Theory, what matters, in terms of utility, is the state of wealth [10] Thus, it does not matter how the level of adaptation was achieved, with gains and losses producing the same effect, which makes the symmetrical utility curve. To demonstrate that the subjective impact of losses and gains is different, Kahneman and Tversky reversed the signs of the problems formulated in their research, showing that agents behave differently in the face of risk situations involving losses.

Again, the investor responses were in line with what the researchers found. When analyzed together questions 17 and 19, for example, it was found that 65% of investors who preferred the certainty of earning R$ 2,400 in Question 17, opted for the alternative whose options were to lose R$ 3,000.00 with a probability of 0.2%, or R$ 0 with a chance of 99.8%.

Moreover, when comparing the responses in pairs, as done in the study of the sure effect, the same inconsistencies are found, with the results obtained certainly being overestimated in relation to the merely probable results, which give doubts. As the psychological factor generated by the loss is more significant than that generated by the gain for equal values in the module, investors' probability of losing is certainly overestimated (Table 10).

Source: Own elaboration
Table 10. Reflection Effect

This shows that investors prefer likely losses over certain losses, even if minor, and helps eliminate any kind of explanation that can give the effect certainty in the sense that aversion to volatility is the possible cause of investors preferring the alternative (b) to Question 19 over the alternative (a), even the pay-out of the latter being higher. If that were the point (risk aversion), investors would prefer to lose $3,000 for sure to lose $6,000 with 80% probability, since in the first option the pay-out is higher, and the variation is smaller.

In practice, there is the reflection effect and the consequent aversion to the loss of these investors observing their behavior in situations in which the investment made, due to market risk, presents negative variation. Graph 5 shows the net fundraising (Caixa IBRX Ativo FI shares) whose portfolios are formed exclusively by assets indexed to IBRX, vis-à-vis the variation of the IBX benchmark.

In the analysis period, Graph 5 shows the sharp drop in invested equity from 03/2020, a period of the covid peak in the world, which demonstrates the risk aversion by investors to uncertainty (COVID), but with resumption from 05/2020, with the peak of return between 10/2020 and 11/2020 (Figure 5).

In Graph 6 we have the accumulated return on assets, where CAIXA IBRX Ativo, Ibovespa and IBX had the following returns, respectively, -15.9%, -15.6% and -14.2% in the accumulated period up to 04/30/2020 and 22.9%, 24.7% and 27.1% in the accumulated until December 31, 2020. In terms of results, even with COVID, the products presented return in "V", which indicates that in this type of risk, the psychological factor can greatly harm investors. In Table 4, we saw an abrupt drop in the equity of the CAIXA IBRX fund, which shows redemptions and loss realization at the time of uncertainty, and soon after 05/2020 due to the appreciation of assets the equity increases again (Figure 6).

Another phenomenon analyzed is when people have to decide between mixed situations. In situations where the result can be both gain and loss, individuals weigh the psychological benefit of the gain by comparing it with the psychological cost of the loss. Individuals have different risk tolerances, but usually the relationship between the psychological cost of loss and the psychological benefit of gain is not 1 to 1, usually with people having more aversion to failure, with the fear of losing more significant than the hope of winning. This means that when they encounter situations in which they must choose between losing and winning, they usually only accept the "game" in case the gain is higher, on average, than two times the loss. In these cases, loss aversion causes individuals to make risk-averse decisions.

In these situations, System 2 usually analyses the characteristics of the options responsible for the choice but is susceptible to the emotional reactions aroused by System 1. This means that, as good as the individual is in analysing the options and as much as he knows that subject, there is no way to exempt himself from the emotions generated by System 1, and his choices will be somehow affected by it.

These two examples, risk aversion to mixed situations and aversion to loss in cases of choices between negative pay-outs, are the essence of the asymmetry of the utility function proposed by Kahneman and Tversky. As seen in Graph 5, the inclination of the utility function changes when losses are considered rather than gains; in this case, the equity reduces due to the outflow of investors from the asset [11, 12].

Conclusion

The work aimed at showing a broader approach to finance and economics, which includes concepts of psychology and sociology, such as agents, and particularly investors, are susceptible to deviations of rationality that directly impact their choices and as specific objectives to answer important questions involving the profile and reaction of investors to situations of choice.

To validate this study, the specific objectives present important results, such as:

The first answered question of the specific objectives on the profile of investors and the main region of Brazilian investors on the stock exchange (B3) at the end of 2020 presents a mainly male concentration (above 73%); Volume applied in B3 is of people with a mean age of 46 years (72.66%); concentration of young applicators (73.68% of B3's total individual accounts are from investors up to 45 years) and a well-known fact is the concentration of investors in the Southeast region (SP, RJ and MG) with more than 69% of the volume (R$) and investors of B3.

The second question about investors' reaction to the win situation is that when the probabilities of gains are substantial, investors opt for the alternative with the highest level of certainty (highest probability). On the other hand, when the chances of winning are remote, they tend to choose the alternative that presents the highest value as a chance of winning. This confirmation is validated by table 10, where the respondents choose the answer with a lower expected value (standard deviation), which generates indications that the respondents are averse to the risk; however, when the certainty of the result increases (questions 7 and 9 item A) the choice increases due to the lower standard deviation, in this case we have indications of a reduction in risk aversion.

Already the last response in relation to the reaction of investors in case of loss, we have that respondents prefer probable losses to the detriment of specific losses, even if minor, and helps to eliminate any explanation that can give the effect certainty in the sense that the aversion to volatility. In Table 9, the possible cause of respondents prefers alternative (b) to Question 19 over the alternative (a) is that they prefer the answer with a greater standard deviation, which shows that they are not averse to risk. Still, when we are sure of the result (questions 20 and 21 item B) the choice increases due to standard deviation 0, in this case, we have evidence of an increased risk aversion.

The questionnaire answers show that the respondents' profile does not directly interfere with how they assess the situations, nor in how they perceive the risk, regardless of the region they live in or level of education. Moreover, the answers in the second part of the questionnaire show that, in addition to feeling comfortable in that environment and safely making decisions, respondents have a certain level of knowledge, even if minimal, of the market.

Therefore, it is possible to observe that the choices do not simply result from a lack of skill of investors or are influenced by specific characteristics such as gender, age, and time of experience. The triad that supports the Perspective Theory a sure and reflection effect, observed in the processes of choices, and the biases and heuristics observed in the judgment processes, provide more than enough evidence to conclude that agents are limited, inconsistent and incur systematic and non-random errors, contributing to explain anomalies that are impossible to explain when taken into account the hypotheses of classical finance theories. These choices and judgment procedures can significantly impact the portfolio of these investors, who, as mentioned earlier, will be felt not only by beneficiaries and assisted by the system but throughout society.

Finally, in view of the answers to the tests (analysis of the answers of the questionnaire) and approach of the book Fast and Slow: Two ways of thinking, Kahneman (2011), it is difficult to control the two systems responsible for the decision-making of the agents, but understanding the mechanism of their functioning, it is possible that deviations from rationality and errors are mitigated.

Finally, man must accept that in the face of choices, or decisionmaking, it is not entirely rational but rather driven by behavioural, psychological components.

References

1. de Souza JDS, Baggio DK, Brum AL, Siedenberg DR (2020) More natural than a sliver of light: Though just as strange. Brazilian J Dev 6:25555-25567.

Google Scholar

2. Fama EF (1970) efficient capital markets: A review of theory and empirical work. The J Finance 25:383-417.

Google Scholar, Crossref

3. Fries LDO (2017) Expected utility theory and efficient market hypothesis from the perspective of behavioural economics.

Google Scholar

4. Glaser M, Weber M (2007) Overconfidence and trading volume. The Geneva Risk and Insurance Review 32:1-36.

Indexed at, Google Scholar

5. Graham JR, Harvey C R, Huang H (2009) Investor competence, trading frequency, and home bias. Manag Sci 55:1094-1106.

Indexed at, Google Scholar, Crossref

6. Jacowitz KE, Kahneman D (1995) easures of anchoring in estimation tasks. Personality and Social Psychology Bulletin 21:1161-1166.

Indexed at, Google Scholar, Crossref

7. Kaizer DCPL, Rodrigues EDSFL, Ferreira ADSMR (2021) financial decisions in the light of behavioural economics: a comparative study of students of Economics and Administration courses at a Brazilian federal university. Revista Facultad de Ciencias Economics: Invest Reflex 29:225-248.

Indexed at, Google Scholar

8. Kahneman D (2012) fast and slow: two ways of thinking Objective.

Google Scholar

9. Kahneman D, Tversky A (2013) Prospect theory: An analysis of decision under risk. In Handbook of the fundamentals of financial decision making: Part I 99-127.

Indexed at, Google Scholar, Crossref

10. Levine DM, Berenson ML, Stephan D (2000) Statistics theory and applications. Rio de Janeiro: LTC 811.

Google Scholar

11. Sandoval DB (2016) A studies on judgments and choices biases and heuristics in the decision-making process of social security systems.

Indexed at, Google Scholar, Crossref

12. Walter SA, Frega JR, da Silva WV (2010) Analysis of investor behavior and perception in relation to risk from the perspective of behavioural finance theory. Revista de Administracao 45:172-187.

Indexed at, Google Scholar